U.S. Job Growth Revised Downward, Bolstering Case for Fed Rate Cuts

The U.S. economy added 818,000 fewer jobs between April 2023 and March 2024 than initially reported, according to newly revised figures from the Department of Labor. This significant downward adjustment underscores the ongoing slowdown in the job market and is expected to reinforce the Federal Reserve’s anticipated move to start cutting interest rates soon.

The revised data suggests that job growth averaged 174,000 per month over the 12-month period ending in March—68,000 fewer jobs per month than the originally reported average of 242,000. These revisions are preliminary, with the final numbers set to be released in February.

The latest revision comes on the heels of a disappointing July jobs report, which showed weaker-than-expected job gains. This prompted many economists to argue that the Federal Reserve may have delayed too long in beginning to cut interest rates, a measure intended to support the slowing economy. The unemployment rate, which has been gradually increasing, reached 4.3 percent in July, while employers added only 114,000 jobs—a stark contrast to previous months.

The Federal Reserve had raised its benchmark interest rate 11 times between 2022 and 2023 in an effort to combat inflation, which had soared to a 40-year high. Since then, inflation has dropped significantly, from 9.1 percent in June 2022 to 2.9 percent, creating a more favorable environment for the central bank to consider lowering rates at its upcoming mid-September meeting.

The labor department’s revisions were made to more accurately reflect employment changes in companies that were either newly established or had gone out of business.

Robert Frick, an economist at the Navy Federal Credit Union, indicated that while these revisions do not undermine the idea that the economy is still expanding, they do suggest that future job growth is likely to be more subdued. This, he added, would increase the pressure on the Federal Reserve to cut interest rates.

The revisions had a notable impact on specific sectors. For instance, the number of new jobs in professional and business services—covering a wide range of roles from managers to technical workers—was reduced by 358,000 for the 12 months ending in March. Similarly, the leisure and hospitality sector, which includes hotels and restaurants, added 150,000 fewer jobs than initially reported.

Ryan Sweet, chief U.S. economist at Oxford Economics, noted that recent job growth figures might have been overestimated, raising concerns for the Federal Reserve as the labor market could be more fragile than previously thought. However, Sweet pointed out that despite the downward revisions, job creation has been robust overall, even if it’s not enough to keep pace with the growing working-age population.

Sweet also emphasized that the labor market’s current challenges are less alarming than a scenario where layoffs were driving the weakening. He suggested that the Federal Reserve might consider beginning rate cuts as a form of prudent risk management to prevent potential vulnerabilities in the labor market from escalating. Sweet reiterated that the preliminary employment revisions have not altered his forecast of a quarter-point rate cut in September, though he warned that the pace of interest rate normalization could be faster than anticipated.

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